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Market Measures

Monday – Friday | 9:00 – 9:20a CT

Applying IV Overstatement

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In this segment, the Research Team tests different strategies across a range of underlyings to determine if there's a connection between volatility overstatement and a given risk profile.

Individual stocks tend to have significantly lower overstatement rates compared to ETFs (i.e. IV > RV less often for stocks than ETFs).

Practically, this means that stock movements are less predictable than ETF movements and they carry more risk for short premium trades.

Our research finds that implementing defined risk strategies for stocks reduces the risk significantly more than doing so for ETFs because of this phenomenon.

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